Compute the net profit margin for 2010-2012 compute the


Assignment: PROFITABILITY Quiz

MULTIPLE CHOICE

1. Which of the following is not a base against which profits are measured?
a. Owners' equity
b. Owners' and creditors' funds provided
c. Intangibles
d. Revenues
e. Productive assets

2. Return on assets cannot fall under which of the following circumstances?

 

Net Profit Margin

Total Asset Turnover

I.

decline

rise

II.

rise

decline

III.

rise

rise

IV.

decline

decline

a. I
b. II
c. III
d. IV
e. The ratio could fall under all of the answers.

3. Which of the following circumstances will cause sales to fixed assets to be abnormally high?
a. A recent purchase of land.
b. A labor-intensive industry.
c. A highly mechanized facility.
d. High direct labor costs from a new union contract.
e. The use of units-of-production depreciation.

4. Income tax expense in interim reporting should:
a. be based on the quarterly income only.
b. contain a judgment estimation of the annual effective tax rate.
c. be based on the income year-to-date.
d. exclude extraordinary items in earlier quarters of the year.
e. disregard year-end adjustments.

5. Which of the following expresses DuPont analysis?
a. Net profit margin = total asset turnover times return on assets
b. Total asset turnover = operating asset turnover times financial leverage
c. Return on assets = net profit margin times total asset turnover
d. Return on investment = return on equity (1 ? tax rate)
e. Dividend yield = dividend payout times earnings per share

TRUE/FALSE

1. Profitability is the ability of the firm to generate earnings.

2. High fixed costs in a period of low activity can cause a low net profit margin.

3. The operating ratios may give significantly different results from net earnings ratios if a firm has large amounts of nonoperating assets generating income.

4. Redeemable preferred stock is best considered as equity for ratio analysis.

5. An interim period is a fiscal period less than one year.

6. The SEC requires interim financial data on Form 10-Q.

PROBLEM

1. DuBois, Inc., experienced the following trend in operating profit ratios for the five years ended in 2012.

 

Operating Income

Return on

 

Margin

Operating Assets

2012

9.7%

12.2%

2011

9.3%

11.5%

2010

9.1%

11.2%

2009

8.8%

10.6%

2008

8.6%

10.1%

Required:

Using the DuPont analysis, determine whether the trend in turnover increased the return on operating assets or lowered it.

2. Fluctuation, Inc., recorded the following profit figures in 2010-2012.

 

2012

2011

2010

Net sales

$30,500

$25,600

$22,900

Costs and expenses:

 

 

 

Cost of products sold

$12,600

$10,300

$ 8,350

Selling

7,875

5,025

4,580

General

2,950

2,325

2,150

Research and development

4,100

3,190

2,840

 

$27,525

$20,840

$17,920

Operating income

$ 2,975

$ 4,760

$ 4,980

Other income (expense)

525

(300)

(400)

Earnings before tax

$ 3,500

$ 4,460

$ 4,580

Income tax

1,480

1,990

2,100

Net income

$ 2,020

$ 2,470

$ 2,480

Required:

a. Compute the net profit margin for 2010-2012.
b. Compute the gross profit margin for 2010-2012.
c. Describe the trend in profitability and pinpoint its causes.

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